Sirius XM Radio (
) is facing a class action suit filed by a nationwide group of
the company subscribers that alleges antitrust law
infringement because the company has abused its monopoly
position and increased its fees by 30%. Sirius is the largest
satellite radio company in United States and is mainly distributed
through automakers and retail locations as well as through Sirius's
own website. Sirius XM has ties with major automobile manufacturers
such as Ford (
) and Toyota (
), which help drive its presence in the U.S. automobile space.
Under the regulatory threat, lower fees could exert negative
pressure on Sirius XM's average revenue per subscriber leading to
downside from our forecasts.
Sirius competes with Cumulus Media Inc. (
) and Westwood One Inc. (WWON), as well as traditional AM/FM
radio and Internet radio offerings from Pandora and
Rhapsody. We currently have a
price estimate of $2.00 for Sirius XM Radio's
, which is about 10% above market price.
Sirius XM's Average Revenue Per Subscriber
This represents average yearly revenue per user and is derived
from total earned subscriber revenue and net advertising revenue,
divided by the daily weighted average number of subscribers for the
period. It decreased from $103 in 2007 to $82 in 2008,
before increasing to $122 in 2009 as the company increased
rates on multi-subscription packages and offered new packages
bundling the best of Sirius and XM. In 2010 average revenue
decreased slightly to $119.
Antitrust infringement could restrict Sirius's ability to
While we currently estimate a steady increase in
Sirius's average revenue per subscriber, we believe
that the threat of antitrust law infringement can force
Sirius to keep the average revenue per subscriber constant
rather than gradually as we currently anticipate. This would
imply 25% downside to our price estimate of $2.00 for
Sirius XM Radio's stock. This scenario would put our estimate
for Sirius XM Radio stock at about $1.50 billion.
You can drag the trend line in the interactive chart above
to test this scenario, and others, and see the potential
impact on Sirius XM Radio's stock.
See our complete analysis of Sirius XM